ECO 2206: Comparative Development

Experience
Lecture 1
Development Economics and
Economic Development, Economic
growth, and underdevelopment
(Reference: Todaro and Smith- Development Economics, Addison-
Wesley,2012.
V.K Puri, S.K. Mishra, Indian Economy and Development)

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 The concept of Economic growth
• Economic growth vs Economic development
• Historically, economic growth is accompanied by:
Greater industrialisation
Greater commercialisation
• Theoretically, economic growth is conceptualised in any one
of the following ways:
i. A rise in gross domestic product (GDP)
ii. A rise in gross national product (GNP)
iii. A rise in per capita gross domestic product
iv. A rise in per capita gross national product
v. A rise in per capita net domestic product
vi. A rise in per capita net national product
vii. A rise in per capita output accompanied by a
reduction in economic inequalities
• The most appropriate approach to measure economic growth
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is© 2012
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terms ofAllarightsrise
Addison-Wesley. reserved. in per capita net domestic product.
THECONCEPT OF ECONOMIC DEVELOPMENT
• Till the 1960s, economic development was often used as a
synonym of economic growth.
• Once economic development was not conceptualised as
economic growth, two different approaches developed.
• The traditional approach stresses two aspects:
(i) Sustained annual increase in GDP at the rate of 5 to 7
per cent or more.
(ii) Structural transformation of an agrarian economy into
an industrialised economy.
• The new economic view of development has been
defined to include improvements in material welfare,
specially for persons with the lowest incomes, the
eradication of mass poverty with its correlates of illiteracy,
disease and early death and finally alleviation of
unemployment and income inequality.
• Protection of environment is now considered to be a part
of the new concept of development.
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THE CONCEPT OF ECONOMIC DEVELOPMENT
• Three Core Values of Development
1. Sustenance: The Ability to Meet Basic Needs
2. Self-Esteem: To Be a Person
3. Freedom from Servitude: To Be Able to Choose
– Correlation of the Above with levels of Income
– Growth and Distribution
• Amartya Sen’s “Capability” Approach
– Functionings as an achievement
– Capabilities as freedoms enjoyed in terms of functionings
– Development and happiness
– Well being in terms of being well and having freedoms of
choice.
– “Beings and Doings”
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 Income and Capability
– A critical question is how far growth and levels of income
are associated with changing capabilities
– Public vs. Private provision of resources towards
developmental needs
– Form and Extent of State Intervention
– How to tackle problems of Corruption, Leakage,
Accountability
– Growth related factors more talked about but effectively
undermined

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Scopes and Nature of DEVELOPMENT Economics

The Nature of Development Economics

• Greater scope than traditional neoclassical economics and

political economy. Rethinking Theory and Empirics.

– Why Study Development Economics? Some Critical

Questions

– The Important Role of Values in Development Economics

– Growth and Development

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 Figure 1.1 World Income Distribution

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 Economics and Development Studies

• Economies as Social Systems: The Need to Go Beyond Simple

Economics
• Social Systems
– Interdependent relationships between economic and non-
economic factors
• Success or failure of development policy
– Importance of taking account of institutional and structural
variables along with more traditional economic variables

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 Figure Income and Happiness: Comparing Countries

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 Sustainable Development Goals (SDG)
The 17 sustainable development goals (SDGs) to
transform our world:
• GOAL 1: No Poverty
• GOAL 2: Zero Hunger
• GOAL 3: Good Health and Well-being
• GOAL 4: Quality Education
• GOAL 5: Gender Equality
• GOAL 6: Clean Water and Sanitation
• GOAL 7: Affordable and Clean Energy
• GOAL 8: Decent Work and Economic Growth
• GOAL 9: Industry, Innovation and Infrastructure
• GOAL 10: Reduced Inequality
• GOAL 11: Sustainable Cities and Communities

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 Sustainable Development Goals (SDG)
The 17 sustainable development goals (SDGs):
• GOAL 12: Responsible Consumption and
Production
• GOAL 13: Climate Action
• GOAL 14: Life Below Water
• GOAL 15: Life on Land
• GOAL 16: Peace and Justice Strong Institutions
• GOAL 17: Partnerships to achieve the Goal

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Conclusion
• Economic Growth
• ‘Economic growth’ refers to increase over time in a country’s real
output of goods and services – or more appropriately product per
capita.
• Economic Development
• ‘Economic development’ implies progressive changes in the socio-
economic structure of a country. Further, development goals are
defined
• in terms of progressive reduction in unemployment, poverty and
inequalities.
• Economic Underdevelopment
• An underdeveloped country is characterised by a low level of per
capita income.
• An underdeveloped country as one which is characterised by the
coexistence of unutilised or underutilised manpower and of
unexploited natural resources.
• Unfortunate Exclusion of Social Mobility as a major indicator of
Underdevelopment
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 Thank You

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 Table 2.2 A Comparison of Per Capita GNI, 2008

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Table 2.3 Commonality and Diversity: Some Basic Indicators

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 Table 2.4 2009 Human Development Index for 24 Selected
Countries (2007 Data)

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What is new in the New HDI?
1. Calculating with a geometric mean

• Probably most consequential: The index is now computed with a

geometric mean, instead of an arithmetic mean
• New HDI takes the cube root of the product of the three component
indexes
• The traditional HDI calculation assumed one component traded off
against another as perfect substitutes, a strong assumption
• The reformulation now allows for imperfect substitutability
• Note that individual impact is now conditional on other elements

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What is new in the New HDI?
2. Other key changes:

• Gross national income per capita replaces gross domestic product per
capita
• Revised education components: now using the average actual
educational attainment of the whole population, and the expected
attainment of today’s children
• The maximum values in each dimension have been increased to the
observed maximum rather than given a predefined cutoff
• The lower goalpost for income has been reduced due to new
evidence on lower possible income levels
• ENVIRONMENT AND GENDER ISSUES –LESS DICSUSSED IN
FORMATION OF INDICES. UNFORTUNATELY CANT COVER
IN THIS COURSE. BUT THESE ARE CRITICAL ISSUES.

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 2.5 How Low-Income Countries Today Differ from Developed
Countries in Their Earlier Stages

• Eight differences
– Physical and human resource endowments
– Per capita incomes and levels of GDP in relation to the rest of the
world
– Climate
– Population size, distribution, and growth
– Historic role of international migration
– International trade benefits
– Basic scientific/technological research and development
capabilities
– Efficacy of domestic institutions

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 2.6 Are Living Standards of Developing and Devolved
Nations Converging?

– Evidence of unconditional convergence is hard to find

– But there is increasing evidence of “per capita income
convergence,” weighting changes in per capita income by
population size

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 Figure 2.8 Relative Country Convergence: World, Developing
Countries, and OECD

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 Figure 2.8 Relative Country Convergence: World, Developing
Countries, and OECD (cont’d)

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 Nature and Role of Economic Institutions

• Institutions provide “rules of the game” of economic life

• Provide underpinning of a market economy
• Include property rights; contract enforcement
• Can work for improving coordination,
• Restricting coercive, fraudulent and anti-competitive behavior
• Providing access to opportunities for the broad population-
• Constraining the power of elites, and managing conflict
• Provision of social insurance
• Provision of predictable macroeconomic stability

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